First, I don't know exactly what should be cut, but frankly even I agree there is a lot of waste and inertia. For example, I often take a class for enrichment at the local Community College. It's an excellent school with outstanding teachers. But the administration is bloated. Nearly everyone, who is anyone, has a full time secretary or even two in some instances. Now I did too when I got out of college, but in this day of computers, emails, etc. why does everyone need a secretary? Further, teachers are paid on seniority. Only at a college would a 10 year physical education aerobic instructor get paid $75,000 plus an absolutely huge benefit package for working nine months of the year. And at the same institution, the 10 year Math/Science/Computer teacher is paid the same. And, neither one can be fired for incompetence unless they commit some heinous act. Is that any way to run a business?

That said, I am a big proponent of education. And given the diverse population and incomes of CA it's not easy. Further, I truly believe that education is a doorway to better income, that in the end, a better educated population will contribute more, pay more taxes and commit less crime.

As for taxes, indirectly as I have said before, I have no problem with lowering taxes, but take off the deductions that usually favor the rich. You mentioned property taxes. CA charges 1.00%. A fair rate I think. BUT, and it's a big but, because of Proposition 13 which passed years ago and now requiring a super majority to repeal it, current property owners only pay 1.00% on their cost basis. What this means is if you bought a property 20 years ago for $100,000, today you are still paying only $1000 in property taxes (plus a few add on fees everyone pays). Compare this to your neighbor, who bought the exact same property yesterday for $500,000. He will pay $5000 in property taxes this year. Is this fair? Worse, if you buy another house, or transfer it to a relative, etc. the cost basis AND the tax is often transferred at the same low rate. Why? This matter is even further exacerbated because it extends to Commercial properties. Bank of America I'm sure bought their HQ many years ago. Why should they pay far less property tax than some new corporation who bought the exact same building next door? Plus commercial buildings turnover much slower than residential, and/or they do transfers versus sales, so this artificial low rate seems to stay on the books until perpetuity.

Remember, property tax, like in NJ is used to fund a multiple of benefits; police, fire, schools, roads, etc. We ALL use these; why should someone who has owned their property longer pay less? Truly, in many cases is a huge difference. Prop. 13 was a good idea on paper, but in my opinion, CA started going downhill thereafter.

To be fair, I have no problem exempting old people, poor people, I'm not looking to drive someone from their home, but enough is enough.....

I say take away these boondoggles. Take away the numerous deductions. And yes, then lower income taxes. And yes, cut spending. A combination of all of the above seems best in my opinion.

But each group has it's own advocates. It's own lobbyists. Easier said than done..... And politics today is not about reconciling our differences.

But some day, as you point out, we can't keep passing it on to the next generation. Something has to give.

JDN, That is really a good answer. On the first part, how to simplify it and get it done? Basically you need to start paying public sector employees market based compensation - whatever it takes in the marketplace to get the right person to do a necessary job well. In the pay plan or out of it, the employee can buy heathcare and retirement plans like everyone else. Isn't that better than bankrupcy and financial collapse.

How you chop excessive administration in the public sector? As you say, run it like a business. Apply careful scrutiny and pressure to every function, every job, every department, every budget line item. In the private sector when it is failing, you cut at the top, you cut at the bottom, but you can't cut much at the level where the work gets done. If you fire or layoff the people who do the main work, you still have to get the work done. In education as you point out, that is the teacher in the classroom. Not the staff diversity awareness coach or the Director of interdepartmental communications or whatever these other people do.

On the property tax question, You make a good point. My suggestion would be a hybrid calculation, not solely based on runaway market values and not solely based on obsolete purchase price data. Prop 13 was a great idea but it is so extreme that it locks people in place. like a welfare dependency. At the other extreme, we have no protection like that. Before the current correction I had the bad luck of seeing my value go up 8-fold. Same house, same location, a couple of decades more worn out and the taxes go up roughly 8-fold - for the privilege of being able to see new construction for the wealthy. That isn't right either. My ability to pay doesn't change with my new neighbors income. I shouldn't get a free pass on my value increase but I also shouldn't be forced out because of it. 'Fairness' is some balance in between.

On taxes in general:"I have no problem with lowering taxes, but take off the deductions that usually favor the rich.""Take away the numerous deductions. And yes, then lower income taxes."

Not to be anal on this, but please train yourself to distinguish always between taxes and tax rates. Calif for sure needs revenues to go up, question is how to get there. No ones knows exactly where, but there is a point where the higher rates bring in no additional revenue. If a lower rate can bring in nearly the same revenue, that means income, especially take home. More take home pay has a multiplier effect; everyone connected gets a potential bump up too from the contact, a restaurant, a waitress, the martial arts school, your motorcycle mechanic, etc. It is not trickle down, it is interconnectedness.

Another way to think of it is in terms of velocity of money. If you tax capital less, if you tax each transaction less, if you tax labor less, etc. money is free to move around better, easier, faster. At lower rates of taxation - and regulation, transactions happen that otherwise wouldn't, and things get done faster. Money gets paid and spent again sooner. The same money at the end of the year has generated more income. Revenues to the US or Calif treasury won't ever go up without rising incomes.

Cut spending first, you can cut out deductions that have no justification as you say, better yet cut regulations, but it is the marginal rate of what is kept that pushes earning, spending and Job creating investment forward, even on the left coast!

First of all, if I am not mistaken, there is an adjustment mechanism limited to 2% a year.

Second, and more importantly in my opinion, is the notion that someone should be buy a property knowing what the taxes on it will be and not be driven off it should the market value of the property go up.

In my case I bought my home in 1997. It went up over 100% in the next 11 years. Had the taxes gone up concomittently, I would have been forced to sell, which would have incurred me capital gains taxes, broker commissions, title search fees, etc etc etc and I would have been forced to leave my neighborhood-- with attendant disruptions on the lives of my family (e.g. children would have had to change school) and me.

Prop 13 makes perfect sense to me. Just as I don't pay capital gains tax when the value of a stock I hold goes up, nor should I pay more when the value of my home goes up.

I respectfully disagree. Or as Doug suggested, perhaps there is a hybrid solution.

For no other investment do you know what your taxes will be 11 years out. Heck, for most matters, I don't know what my tax rate will be next year, much less a decade from now. Further, you now use the same services like the neighbor next to you who bought the exact same house 11 years later and now pays double the taxes. You use the same schools, the same roads, the same social services. Why should you get a 50% discount merely because you lived their longer? Also, as you know, since you live in your house, you receive a $500,000 capital gains boon, i.e. no tax on the first $500,000 of profit (a benefit I would also eliminate - why is a house any different than selling something else for a capital gain?). It's social engineering using tax money. On most issues everyone here agrees that is bad. Why is an exception ok for homeowners who live in affluent communities? Why should others be forced to subsidize your high standard (living in an expensive community) of living?

No offense, but more fair to require that you either pay your fair share or take your $500,000 tax free profit and move. I would give breaks to old people on fixed income and truly poor people (exemptions already exist) but for able bodied people, they should pay their fair share.

But back to the hybrid idea. Why in the world are businesses covered? I suppose you could say Prop. 13 supports home ownership, I suppose that's good although I don't like using taxes to do social engineering, but why give this break to businesses? Further, the original idea was that there would be turnover, once sold the house would change to the new tax rates, but commercial property turns over at a much lower rate than residential thereby enabling businesses to keep year after year a ridiculous tax break.

____What is Proposition 13?Proposition 13, passed in 1978, established the base year value concept for property tax assessments. Under Proposition 13, the 1975-1976 fiscal year serves as the original base year used in determining the assessment for real property. Thereafter, annual increases to the base year value are limited to the inflation rate, as measured by the California Consumer Price Index, or two percent, whichever is less. A new base year value, however, is established whenever a property, or portion thereof, has had a change in ownership or has been newly constructed.

Under Proposition 13, the property tax rate is fixed at one percent of assessed value plus amounts required to repay any assessment bonds approved by the voters.

"For no other investment do you know what your taxes will be 11 years out."

Not so. You know that if you don't sell a stock, you won't pay taxes on it. You know that, barring a change in the law, what the tax rates are on the dividends, the capital gains, etc.

Putting aside the social engineering/capital gains issue, there is still the matter of barriers to exit and entry imposed by broker commissions and other transactional costs, having to move one's family, etc. Why should people be driven from their homes because property values have changed?!?

The depreciation schedule for a property is set by its book value; following the logic you are using we should be saying that the allowed depreciation deduction for the property should go up when the property's value goes up-- but we don't do that.

"For no other investment do you know what your taxes will be 11 years out."

Not so. You know that if you don't sell a stock, you won't pay taxes on it. You know that, barring a change in the law, what the tax rates are on the dividends, the capital gains, etc.

But tax laws do change. And I'm not suggesting that you pay capital gains each year. Rather, since you are receiving benefits in the community, it's more like a dividend. And you do pay taxes each year on a dividend. And as the dividend rises, your tax cost rises too.

Putting aside the social engineering/capital gains issue, there is still the matter of barriers to exit and entry imposed by broker commissions and other transactional costs, having to move one's family, etc. Why should people be driven from their homes because property values have changed?!?

You cannot put aside the social engineering issue. In a free market, you have the choice to earn more money and thereby remain in your home. Why should I subsidize your affluent life style merely because you have lived there longer? You always have the choice to take your $500,000 tax free capital gain and move. Sure there are inconveniences and costs, but then a lot of people who want to move to your community have costs and/or can't move to your community because of the high price. They too lose. Life is not always fair. This site seems to emphasis the Darwinian ideas; why are property owners (already a rich class compared to renters) exempt? I bet you are against rent control; how is that any different?

The depreciation schedule for a property is set by its book value; following the logic you are using we should be saying that the allowed depreciation deduction for the property should go up when the property's value goes up-- but we don't do that.

No because capital gains are not taxes until the property is sold. And even then you get a windfall; an absurd $500,000 tax free exemption. Look upon property taxes as a user tax; you are using the services of a community the same as your next door neighbor who bought his house yesterday. Why should he pay double your user tax?

And finally, as a compromise, as our mayor has suggested, why not eliminate Prop 13 for businesses?

I was withdrawing my assertion about incurring capital gains as a barrier to exit.

"In a free market, you have the choice to earn more money and thereby remain in your home. Why should I subsidize your affluent life style merely because you have lived there longer?"

It is NOT a subsidy! As I have pointed out a number of times already, I am paying taxes by the same principles applied elsewhere in the tax code. Why is it not unequal taxation when the depreciation schedule on a commercial property is defined by its book value when the market value has actually gone up?

"Rather, since you are receiving benefits in the community, it's more like a dividend. And you do pay taxes each year on a dividend. And as the dividend rises, your tax cost rises too."

Ummm , , , Nope. It is not necessary that services rise with market values.

"And finally, as a compromise, as our mayor has suggested, why not eliminate Prop 13 for businesses?"

As a matter of political compromise, I suppose so, but really, as has been frequently noted in this thread, CA is heavily overtaxed already. The value of the property is inversely affected by tax rates, so eliminating Prop 13 for business will affect commercial property values negatively. Not only will rents go up (perhaps driving some businesses out of their current locations, perhaps driving some over the edge into bankruptcy) but so to will the ratio of non-performing mortgages for banks.

"Why should people be driven from their homes because property values have changed?!?"

Let's start with that point.. Amen!

If 2% is not the right escalator limit then the answer is 3% or 4, not double digits compounded continuously.

Regarding the rest of the budget problem, go back to the spending arguments. After Prop 13, it was unfair for Calif to raise property taxes so much on the others, when they can't assess them evenly. Another example inefficient taxation. Also, irresponsible to spend what you don't have the tax base to collect.

The capital gains on your house is a point well taken. Most people can get a one time exclusion on that. Also I think one main difference is that there at least is money to pay the tax with at the time of the sale of the asset, whereas a residential property tax taxes you for existing, the money has to come and keep coming from somewhere else. On the cap gains tax on a home, you are mostly taxing an inflationary, illusory gain. The asset didn't change much; it was the value of the dollar received back at the tail end that has changed. In the case of a stock sale or a dividend, the capital gains tax is generally an additional two layers (state and federal) of taxation on an after-tax distribution of income that has already been taxed twice (state and federal).

Meanwhile, while Calif contemplates more income tax rate hikes (as do other high tax rate states in trouble), they still have to compete with: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire and Tennessee, all with no individual income tax on ordinary income?? How do all of those do that? North Dakota is looking at repealing their income tax too, because of oil boom revenues. Too bad that California lacks natural resources...

Tax group finds 125,000 more people left California than arrived in most recent period.

THE ORANGE COUNTY REGISTER

The 1996 Kurt Russell movie "Escape from L.A." might be remade as "Escape from California." New data show record numbers of Californians "outmigrating" to other states. The state's population is still growing, although at a slower rate, because of in-state births and immigration from other countries. However, recent immigrants generally have lower incomes than citizens, thus lowering the tax base.

The figures come from a new calculator created by the Tax Foundation, a taxpayers' rights group. It's online at: interactive.taxfoundation.org.

During 2009-10, the latest period available, 406,833 Californians migrated to other states, while 281,521 people came here. Net outmigration: 125,312. Lost economic activity from those who left: $10.6 billion. Given that state and local taxes take about 10 percent, that comes to about $1.6 billion in lost tax revenue – for just one year.

Let's calculate the past decade, 2000-10. During that time, 4.9 million left the state, 2.5 million came in. Net out-migration: 1.4 million. Yearly lost economic production: $146 billion. Lost tax revenues, about $14.6 billion a year. That's almost twice the $8.5 billion Gov. Jerry Brown seeks in his tax increase on the November ballot.(Much more at the link)

In order to truly raise taxes on the rich, you must first bar the exits.

Actually, the rich aren't leaving CA. They have the money they want and they love CA. Do you really think the rich are going to migrate to Iowa, the state the article uses as an example? And for 2.00% more in State taxes, they still won't leave CA.

While you were asking how they could possibly leave with the condescension that no state in the heartland is livable after living in California, $10.6 billion of lost economic activity left. Much of Calif FYI is not on the beach.

The idle ivory tower, liberal think tank, second and third generation, never-built-a-company wealth might never leave. Those striving for future wealth are leaving in droves.

The article isn't about whether I think people could possibly out-migrate; it is about the part that is already happening.

Let's try asking another way about the desirability of building products in California. Of all the great products made by great California companies (like Apple, Intel, Standard Oil of Calif and all the rest) what portion of those products are made in California employing another generation of Californians? None??

Actually, I can't imagine moving to Iowa from CA and I don't live at the beach.

As for those striving for future wealth, just look at Apple, Oracle, Google, Facebook, and the thousands of successful high tech start ups. I'll compare CA to Iowa any day if you trying to identify "those striving for future wealth."

The ones that can't cut it are leaving. The brilliant ones are doubling down. And for sure, they aren't going to Iowa.

The post was empirical, not imaginary. It didn't say you would move; it said others already have. A serious rebuttal would be to quote a study to the contrary or point out what is wrong with their methodology. Nothing but silence on those scores.

JDN's reaction to be called out on condescension for the heartland is to pile on more of it. What a shame. Iowa jokes are big here. Keyword is joke, not just snobbery - like you and the bitter clingers guy. What part of half the unemployment rate and friendlier to business (and cleaner air, cleaner water, better education and lower crime rate) don't you get? http://www.bls.gov/web/laus/laumstrk.htm That only applies to people out of work? Okay, but by that definition it still applies to millions of people. http://www.huffingtonpost.com/2012/05/06/californias-long-term-une_n_1489918.html Of course they are too poor or too stupid to matter? What wealth do unemployed people have is just more snobbery. One thing each unemployed, willing-to-work person has is perhaps 1-5 million dollars or more of future earnings.

It is no joke here in the Twin Cities that the income tax rate across the border in South Dakota is zero. Look at what they don't have culturally that we do... still jobs leave. Not all jobs leave but some do. 3M (Minnesota Mining and Manufacturing) fought for years with the state government over taxes, then expanded in a lower tax state: http://solutions.3m.com/wps/portal/3M/en_US/Austin/Plant/

We've had this discussion before. That you won't admit what happens at the margin is CRUCIAL in economics, doesn't mean it isn't so. There is a force pulling economic activity out of California. That doesn't mean all economic activity leaves. But a net out-migration of productive human resources is a force large enough to prevent you from solving your state budget mess without having to do even more painful root canal work. Keep in mind you do not have to leave Calif to make some of your US income taxable in other states. http://www.google.com/about/datacenters/locations/council-bluffs/

Another choice for Californians besides leaving or ignoring what is wrong or mocking those who govern responsibly would be to fix what is broken. Good luck solving your problems without admitting them, or caring.

The post was empirical, not imaginary. It didn't say you would move; it said others already have. A serious rebuttal would be to quote a study to the contrary or point out what is wrong with their methodology. Nothing but silence on those scores.

JDN's reaction to be called out on condescension for the heartland is to pile on more of it. What a shame. Iowa jokes are big here. Keyword is joke, not just snobbery - like you and the bitter clingers guy. What part of half the unemployment rate and friendlier to business (and cleaner air, cleaner water, better education and lower crime rate) don't you get? http://www.bls.gov/web/laus/laumstrk.htm That only applies to people out of work? Okay, but by that definition it still applies to millions of people. http://www.huffingtonpost.com/2012/05/06/californias-long-term-une_n_1489918.html Of course they are too poor or too stupid to matter? What wealth do unemployed people have is just more snobbery. One thing each unemployed, willing-to-work person has is perhaps 1-5 million dollars or more of future earnings.

It is no joke here in the Twin Cities that the income tax rate across the border in South Dakota is zero. Look at what they don't have culturally that we do... still jobs leave. Not all jobs leave but some do. 3M (Minnesota Mining and Manufacturing) fought for years with the state government over taxes, then expanded in a lower tax state: http://solutions.3m.com/wps/portal/3M/en_US/Austin/Plant/

Doug, you started this conversation with the lead line, "In order to truly raise taxes on the rich, you must first bar the exits." That's a silly joke; or as you like to say, a "straw" something or another, and I pointed that out. That is the sentence with which I disagreed. The rich, the successful aren't leaving California. High Tech brilliant people are moving into CA. And many are getting rich. Few if any are leaving. CA is a fabulous place to live if you are smart and successful.

Yes, those unemployed represent "future earnings" but for now, they represent a negative drain. And the fact that they are unemployed, many for a long time says obviously they are not the cream. So.....

Nothing wrong with Iowa I guess; I grew up in Wisconsin. But better I think than Iowa.

And if I lived in the Twin Cities (lovely area/state - best of both; nature and culture) I can't imagine moving to Iowa or South Dakota unless they doubled or tripled my salary if even then. But maybe that's it. When you are unemployed, no one wants you, doubling or tripling is easy to do.

That said, I'm not looking for a fight (discussion). CA has it problems. I have pointed out public employees need to be reigned in. I agree regulations and wastage need to be addressed. I have pointed out taxes need to be changed, not just for the rich, but for everyone, i.e. Prop 13. You can't afford a house because the property taxes are too high; well that is because you are subsidizing the people who have lived here for a long time. Ridiculous. MN's property taxes are complicated, I'm sure you know far far more than me, but in summary it looks like over 1.5%. It doesn't sound like much, but an additional .5% or more of total property value is a lot; especially when it's applied to every building, it's definitely a lot more than CA at 1.00% and worse, an even much much lower percentage for people who have lived in their home for a while. Is that fair? No wonder new housing is hurting in middle and lower class neighborhoods; they are subsidizing the long term residents. We could have lower income state taxes if long term homeowners and business, in comparison to new homeowners and new business, paid their fair share.

JDN, Of course Calif is beautiful, so is Greece. Solving the economic problems is a matter of moving things in the right direction in terms of business climate and productive investment. California needs robust growth going forward to survive, not a gradual erosion of its economic greatness, Silicon Valley, etc. Those other states are doing something right. Calif, not Wisconsin or Iowa, leads this nation economically, at the moment it is in the wrong direction. Calif can't survive having so many factors moving against them, lower workforce participation rates, out migration of workers, business investment out or down, (still) increasing regulations on business, failure to develop natural resources, inflationary capital gains taxed at very high ordinary income rates, the worst corporate tax rate in the developed world, etc. etc.

Remember the economic greatness of Japan and how it stalled. At the start of the stall, it was said (WSJ I believe) that what Japan's economy needed was bold action on a number of policy fronts, and that what Japan's political system was incapable of is bold action.

California's economic problems today are far worse. Long term unemployment is undermeasured at 10-11%, underemployment at 20%, workforce non-participation rate dropping toward 50%, and productive resources in a net-outflow direction? What they need (MHO) and are incapable of is a sharp turn toward red-state style governing, Scott Walker style public sector reforms, sharp public spending cuts, sweeping deregulation (the excessive ones, not pollution, corruption etc.) and tax rates competitive with its neighbors and competitors. JDN, you may support some of this but really these ideas are not even on the table.---Here is a different example of a net in-migration solving budget problems, my daughter's outer ring suburban school district. They have conservative governing principles, a strong academic focus, a 99% graduation rate and a 93% on-to-college rate, and put out color glossy annual reports and advertising to tout it. That shouldn't matter in the public sector but MN has a public school open enrollment policy so kids (parents) can choose their school district without moving if the district has the space to accept them. Roughly 10k/year of state funding follows the kid to the district. The net inflow to the good districts allows them to fully utilize existing resources and hold the line against new tax levies. With a class size close to 30, $10,000 per kid per year is a revenue stream of close to 300k per classroom, enough to hire a teacher, a smartboard and pay for quite a bit of overhead (hockey arena, domed stadium, orchestras, foreign language immersions, college programs etc. In Mpls OTOH, they probably have far better diversity training, Head Start participation and other programs, friendship camps etc. but the graduation rate is 50%, the outflow of students and money in massive, the cost is double at 20k/yr/student and the budget situation is a mess. When they closed North high, hardly anyone noticed because the enrollment was a fraction of what it once was. It isn't just the out-migration that is killing them (or Calif), it is that the underlying causes of that movement keep going unaddressed and unsolved.

"You can't afford a house because the property taxes are too high; well that is because you are subsidizing the people who have lived here for a long time."

Forgive me, but how utterly ass backwards-- and Orwellian. What don't you understand about the concept of book value and basing taxes upon it? It what we do for depreciation schedules after all. Why aren't you calling for increasing the depreciable value of a property when values rise? The concept would be the same after all. The answer is that this would cut against the state taking ever greater sums from we the people.

Prop 13 was passed in reaction to the property bubble of the late 70s-- which was driven in great part by property rights theft of the the progressive CA Supreme Court's "Wellencamp" decision which voided "due on sale" clauses in mortgages (a.k.a. trust deeds) -- in conjunction with the Carter inflation.

The State was happy to reap the unearned revenues of the property bubble, not giving a flying fcuk about all the people being driven from their homes-- until we the people passed Prop 13-- which limits increases to 2% a year.

Oh the horror! The outrage! The indignity! The disrespect to the all-powerful, all knowing State of having to live with 2% revenue increases a year!

The fg problem is that spending in CA increases far, far, far faster than population plus inflation. The solution is not the profound arrogance of driving people from their homes. The solution is living within one's means.

Doug, I understand and agree with you comments about CA's problems. Some are on the table, but they seem to be swept away as if they don't exist. In reality, they do; a day or reckoning will come. In the interim, to defend Brown, or whomever is Governor, they have one hand tied behind their back trying to fix the problem. But something does need to be done and it's not to raise taxes (although I am in favor of the 2% on the rich, it's a bandaid on a serious wound, that will not make much of a splash nor does it address the true issues as you pointed out).

On your education post (last paragraph) I'm undecided. Like your daughter, I too went to a public high school in the suburbs here in LA. It is rated in the top 3 public high schools in CA and is among the best in the country. 100% go on to college. People beg, use their uncle's address, they do anything to send their kids to this school district. Yes, the children benefit, and indirectly since the school district gets money from the state, it benefits too from increased enrollment.

But what about the schools in the inner city. The poorer areas? Who wants to go to those schools? Who wants to work at those schools? And if you take the cream, what's left? Sure it costs double; I would want double to teach there. I have friends who teach in my old area; the students are bright, polite and attentive. It's an "easy" job. In the inner city, I also have friends who teach, God bless them. Rapes on campus happen, one friend was physically threatened if she didn't give a better grade, etc.....

But public policy has to take care of the good AND the bad. The suburbs and the inner city. I don't know the solution, LA Unified School District is trying under a new Superintendent, but it's not easy.

I leave the underlying problems of the inner city for another thread and my views are out there. The analogy point was that in-migration / out-migration at the margin matter immensely at balancing a public budget. You need all these factors moving in the right direction - and then some. And they aren't. I agree that Gov. Brown cannot solve problems without the electorate and the assembly on the right track. I have not followed Brown closely, but my guess is that if all he has proposed were enacted it would not improve or solve things.

I don't know how to say it more persuasively, but another 2% tax (20% tax increase on job creators) won't bring in another 2%. Experience says it will bring in about the same amount or less and if investment leaves, jobs leave. The rich adjust their behavior; they are already paying all of what they are willing to pay.

Both Brown and Schwarznegger were mavericks at one point in their own parties with the potential to do some straight talk and push for sweeping change. None of that to my knowledge is happening.

You're entitled to your own state governance. My problem is that I don't see how America gets healthy with California in hospice.

HERCULES, Calif.—Cities across California are grappling with the economic fallout from the state's closure of redevelopment agencies, the municipal organizations that try to turn around blighted areas. The shutdowns—aimed at aiding the cash-strapped state—have resulted in layoffs, lawsuits and the loss of millions of dollars in municipal tax revenue.

The pain is evident in Hercules, an old industrial city of about 26,000 people located 25 miles northeast of San Francisco.

For years, the Hercules Redevelopment Agency bought land and launched real-estate projects to attract restaurants and stores, financing the efforts by selling bonds. Any new property-tax revenue these projects generated went to the agency.

But Gov. Jerry Brown ordered the agencies shut last year and directed that the property-tax revenue they created be spent elsewhere. That prompted Hercules to lay off more than 40% of its city staff, or about 100 workers.

The closure left Hercules in a fiscal bind: Its redevelopment agency had racked up more than $300 million in debt to finance projects, leaving the city on the hook for about $20 million in annual debt payments.

"Now we're left with picking up the pieces," said Steve Duran, the Hercules city manager. In March, the city narrowly escaped default on its bond payments.

.California had 425 local redevelopment agencies, which employed as many as 40,000 workers, according to state officials. Redevelopment financing generated nearly $6 billion annually for the agencies, according to an audit last year by the state controller's office.

Critics of the redevelopment agencies contend some cities used the bodies as a financial crutch and not solely for their intended purpose. "The state did not conduct audits [of redevelopment agencies], never asked for any real financial details," said Mike Oliver, a longtime municipal-finance consultant and former city manager of San Leandro.

Donald Fraser, a municipal-finance consultant in Roseville, northeast of Sacramento, said some redevelopment agencies were too aggressive with their projects and didn't take into account how those deals would be hurt by a drop in property values. He said some agencies experienced a 30% to 40% drop in revenue because of the housing collapse in recent years, and they now struggle to repay their debts.

"Some cities are down to just barely making debt payments and are staring at very troubling balance sheets," said Mr. Fraser, who estimates that 10% of the state's redevelopment agencies fit this category.

In Hercules, city officials were forced last year to unwind a $20 million youth stadium deal financed with redevelopment money after the drop in property values meant the agency no longer could afford the deal. The project experienced further trouble after city officials signed an agreement with the stadium developer without first securing the land needed to build the sports complex.

But supporters of the agencies point to redevelopment successes, including San Francisco's Yerba Buena Center for the Arts, a popular cultural venue that helped revitalize a struggling neighborhood; Los Angeles's Plaza Pacoima, a retail complex created from a former factory site; and the overhaul of downtown districts in Pittsburg and Richmond.

The demise of California's redevelopment agencies is being watched by municipalities nationwide, which say they now may be better able to attract businesses to their redevelopment projects.

With California no longer a redevelopment player, "that gives a big boost to other states and cities," said Bob Marcusse, chief executive of the Kansas City Area Development Council, an agency that serves parts of Kansas and Missouri.

California granted its municipalities the authority to operate redevelopment agencies in the late 1940s. The agencies were allowed to keep any increase in property-tax revenue resulting from their improvements, rather than send the money to the state.

In 2010, Mr. Brown faced one of California's recurring budget deficits. He argued that the money cities dedicated toward redevelopment and the tax revenue from those projects should be used for public safety and schools instead—helping offset state funding of those activities. He proposed axing redevelopment agencies last year, and the legislature approved the move.

The pain from the closures is spreading. In Westminster, about 25 miles south of Los Angeles, the city is preparing to lay off nearly 30% of its staff, according to officials. The entire city of about 10 square miles was declared a redevelopment zone and used redevelopment money on salaries for police, managers and administrators.

"We're standing on very shaky ground," said Mark Lauderbach, an officer with the Westminster Police Department.

Meantime, many cities are attempting to unwind deals involving properties they had planned to redevelop, potentially losing money because they purchased the land when property prices were at a premium last decade.

In San Jose, about 45 miles south of San Francisco, officials plan to sell nearly three dozen properties that had been slated for redevelopment, including a vacant hotel and a parking garage. The city has a real-estate portfolio worth as much as $60 million, which city officials said they hope will help pay down the $4 billion in debt its redevelopment agency amassed. Mayor Chuck Reed said San Jose may have to sell some property at a significant loss since real-estate prices have fallen.

"We've been left with very few options to deal with this very big problem," said Mr. Reed.

The State was happy to reap the unearned revenues of the property bubble, not giving a flying fcuk about all the people being driven from their homes-- until we the people passed Prop 13-- which limits increases to 2% a year.

Oh the horror! The outrage! The indignity! The disrespect to the all-powerful, all knowing State of having to live with 2% revenue increases a year!

The fg problem is that spending in CA increases far, far, far faster than population plus inflation. The solution is not the profound arrogance of driving people from their homes. The solution is living within one's means.

I think we agree to disagree, but I can't help think your attitude might be different if you weren't directly and substantially benefiting from Prop 13. It has nothing to do with depreciation. It's a simple tax to support the city and state in which you live. Nearly every other state in America taxes residential and commercial property equally regardless of time of ownership. If you want to live in a million dollar plus home neighborhood, great, but one should pay their fair share; don't ask the new neighbors to subsidize you and expect them to pay a lot more property taxes on exactly the same home you have just because they moved in after you. If you can't afford to live there, don't.

Worse, people who have lived in their home AND businesses who have owned their building for a long time (or transferred it using a trust) don't even pay the average amount. I bet if we raised our property taxes to the nations average, more important taxed every building the same percentage, we could lower our state income tax rate quite a bit. Following the logic of some here, that might even generate new taxes....

I agree, if a person is old and poor, offer an exemption or discount. But I know people who are quite wealthy, but since they have lived in their homes for a long time,they pay far far less than their new neighbor. It's often a subsidy for people who often don't need it. Somehow, you think that's fair?

I understand that different states have different ways and different mixes of taxes. What I object to is calling operating with the concept of book value a "subsidy". It is a "subsidy" if someone holds a stock which has appreciated a lot without taxing them on the appreciation?

The argument pro and con over Prop 13 is important, but comparing property tax rates to a zero income tax state is quite a bit misguided IMO. Also missing in the "double" argument is that property tax is roughly the same percentage of income in Texas (3.65%) as in California (3.59%) - and they have no income tax.

Tax issues are interesting but IMHO there is no tax rate solution for that level of excess spending.

"I bet if we raised our property taxes to the nations average, more important taxed every building the same percentage, we could lower our state income tax rate quite a bit."

No. If you could tax more, spending would go up even further. Look at the record. State and local spending up 250% in the last 18 years? http://www.usgovernmentspending.com/california_state_spending.html

I understand that different states have different ways and different mixes of taxes. What I object to is calling operating with the concept of book value a "subsidy". It is a "subsidy" if someone holds a stock which has appreciated a lot without taxing them on the appreciation?

It IS a subsidy. You get the same public benefits/services as someone who buys their house this year, yet because you bought you home years ago, you pay much much less. Worse, IMHO this applies to businesses as well. It has nothing to do with "book value". Everywhere else in America, it's an annual percentage tax on current value to pay for public benefits like roads, schools, police, fire, etc. Each entity pays their proportional share based on current values; that's why we have assessors. This holds true in every state except CA.

However, your analogy of a stock is different; if you want to talk capital gain tax, the same applies to your house; or it should. When you decide to sell it, you should pay a capital gains tax, yet in most instances (under $500,000 gain) it's tax free. That too is another albeit different "subsidy".

"It IS a subsidy. You get the same public benefits/services as someone who buys their house this year, yet because you bought you home years ago, you pay much much less."

No. You are playing with words here. Your property tax is not a usage fee. Property tax is theoretically based on your ability to pay. Your school tax does not depend on whether or not you have school age children. Your fire cost does not change with brick vs. wood construction, we don't charge welfare recipients for using welfare services, etc. Arguably original purchase price is a better benchmark for ability to pay than current market value when market values run wild, and 'current market values' have proven to be grossly overinflated and false.

The person paying on a 20 year old value is still probably paying in more than his cost for government services, just not more than his share of total costs.

All rates need to be lower so that equalizing the rates will not put families out of their homes.

It frankly would be fairer to base your tax assessment on the way you vote than where you live.

The fact that others do it differently does not make this a subsidy. As I have already shown more than once is that what we do here in CA is done here is well within the conceptual constructs applied elsewhere in our tax code(s).

A very large majority vote passed Prop 13, and a large majority supports it still. Why would this be the case if your accusation of "subsidy"! were true?

There is a theory that the welfare culture plays a contributing role turning the lives of men in particular toward crime and incarceration. See writings by Thomas Sowell, or books by George Gilder including 'Wealth and Poverty' and 'Men and Marriage'. The government and the welfare system takes the place of what used to be the role of the husband and father as the provider. Under our system it is primarily the female with child/children who get most assistance. For every woman or girl with a baby who take public support, not as a temporary assist but as a way of life, the male is then free of that responsibility, free to impregnate elsewhere, and to pursue a life of survival, recreational drugs and crime on the streets. He can shack up with a single woman on assistance and not be bound by rent, mortgage, healthcare payments, buying groceries and not have to get up and go to work on a regular basis. The theory holds that the adult human male needs the responsibility of family or is otherwise prone to fill that void with less responsible pursuits. The people operating outside of our productive economy are available for other diversions like drug or gang activity which tend to be outside of the law and many eventually experience incarceration.

Of course we also incarcerate fully employed white collar criminals too, embezzlers, insider traders, etc. family men, but I don't think that is where the numbers are. It would be interesting to know what portion of the 11%, a huge budget item in Calif, is indirectly an offshoot of our big hearted, good intentioned welfare system.

It is quite old fashioned, but there used to be a culture that the man did not get to have sex with the pretty girl unless he committed to take care of her and any young ones until death do they part. Men would not only agree to that but be better off for it. Not so much anymore.

I am thinking for voting FOR the expansion of term limits from 6 to 12 years; the idea being that 6 years is not enough for the development and transmission of institutional memory with the result that the elected official tends to be even more at the mercy of his staff and lobbyists.

By MICHAEL BOSKIN AND JOHN COGAN California's fiscal and governance crisis careens from bad to worse. The latest blow: a 70% increase in the state's projected budget deficit in Gov. Jerry Brown's revised budget, to $16 billion from $9 billion. Meanwhile, S&P warns of a downgrade to the state's bond rating, already the lowest of any state, and the latest CEO survey ranks California's business climate dead last.

Caught in the symbiotic financial embrace of special interests—teacher and other public-employee unions, trial lawyers and environmental extremists—Mr. Brown and the state legislature repeatedly nibble around the edges of the budget broken by costly, ineffective programs, financed by an uncompetitive, volatile tax system.

Mr. Brown colorfully but correctly calls the budget, riddled with earmarks and creative accounting, a "pretzel palace of incredible complexity." He and the state legislature are choking on the pretzel. They've lost credibility by offering hopelessly optimistic projections; diverting revenue earmarked for other purposes (such as funds meant to help homeowners from the national bank-mortgage settlement) to the general fund; and gambling on Silicon Valley to produce more revenue from capital gains and stock options. Call it casino budgeting.

The governor describes his budget and November tax-hike ballot initiative as "real increased austerity" while calling on voters to "please increase taxes temporarily." Cutting through the shifting numbers and fanciful assumptions, what is actually proposed is closer to a permanent tax hike and modest temporary budget cuts to fund a permanent spending increase.

Mr. Brown's original bad idea, raising the state's top marginal tax rate of 10.3% to 12.3% for five years, is now even worse: a highest-in-the-nation 13.3% on individuals and small businesses for seven years retroactive to Jan. 1, 2012, and a small increase in the sales tax for next year.

While the governor proposes cuts in social services, higher education and the courts, total spending nevertheless goes up to $91.4 billion in fiscal year 2013 from $86.5 billion in 2012, a 6% increase. Spending on K-12 education alone rises beyond constitutional requirements to $38.5 billion from $34 billion, a 13% increase.

In the past, Californians have supported more education spending on the assumption it would improve education outcomes. It hasn't. Sadly, the state has an elementary and secondary school system that ranks in the bottom fifth of all 50 states in math scores, and a high-school dropout rate that's soared relative to other states, especially for African Americans and Hispanics.

The prison system spends $45,000 per year per inmate—about equal to the median take-home pay of American families. Welfare and MediCal (the state's Medicaid program) caseloads are vastly in excess of national averages.

Mr. Brown does have some good proposals. He's bringing the state's welfare-to-work program in line with federal rules, and he's called for small Medicaid co-pays, which the Obama administration foolishly blocked. But his bad ideas far outweigh the good, including restricting the use of private contractors on public projects and a $68 billion high-speed rail proposal that would drain revenues from higher priorities for decades.

The governor's one innovative program is "realignment" between the state and counties, especially of the state's overburdened prison system. But counties worry that costs of the permanent shift of convicts from state prisons to county jails will eventually fall to them.

Unlike other governors from both parties who pushed overdue reforms, opposed by public-employee unions, through their legislatures—Wisconsin's Scott Walker, New Jersey's Chris Christie and New York's Andrew Cuomo, to varying degrees—Mr. Brown has not even pressed the Democratic-controlled legislature to pass his own sensible pension proposal.

He is seeking a deal with the unions that only temporarily reduces wages and work hours by 5% each, saving 0.4% of the budget. Usually a pay cut refers to working the same hours for less pay, not a forced, unpaid vacation. Mr. Brown has not made it clear whether the reduction is for one year or longer, or even whether the compensation would be paid back later (if so, it amounts to a paid vacation, not a pay cut).

The governor has reduced the workforce by 2% and proposed further, gradual reductions. But this represents a failure of imagination. The state should replace half of the sizable number of workers who will retire in the next 10 years with technology and at the same time institute performance pay, saving a bundle and improving service delivery.

Meanwhile, Mr. Brown forges ahead with his proposal for higher taxes despite considerable evidence that states with lower tax rates grow faster than states with high tax rates. Higher marginal tax rates will speed the exodus from the state, which has a 10.9% unemployment rate, the country's third-highest.

California's casino-like budget reflects its highly volatile revenue system. In good times it collects almost half its income taxes from the top 1% of the population, relying heavily on capital gains, taxed at ordinary income rates, and stock options. This exposes the state to dramatic revenue collapses during recessions and stock market declines.

The state lurched from income tax growth of 54% in the two years from 1998-2000—money that was spent and built into the permanent budget base line—to a collapse that erased these revenue gains the next two years. This dysfunctional swing was repeated in the recent housing bubble and bust. Mr. Brown's tax initiative would exacerbate the volatility.

To remedy this and other problems, two recent bipartisan California Tax Reform Commissions, one on which we served in 2008-09, recommended the state combine a broader tax base of economic activity with much lower marginal tax rates, modeled on the landmark 1986 tax reform of President Ronald Reagan and Sens. Bill Bradley and Bob Packwood—the exact opposite of Mr. Brown's proposal.

Absent real reform, there is little likelihood the long-run budget will be balanced, and a high likelihood the "temporary" tax hikes will not only become permanent but form the new base from which even higher taxes are demanded.

California still leads the world in technology, agriculture and entertainment, but politicians in Sacramento are headed in the opposite direction from growth, prosperity and effective, affordable government. They have so far refused to live up to the demands of, let alone seize, the moment. Instead, like their counterparts in Greece and other bankrupt European nations, they seem intent on continuing the broken high-tax-and-spend welfare state experiment as long as they remain in office.

Messrs. Boskin and Cogan are, respectively, professors of economics and public policy at Stanford University, where they are both senior fellows at the Hoover Institution.

Government reformers notched several victories on Tuesday, including two in California, of all places. Voters in San Diego and San Jose—the state's second and third largest cities—overwhelmingly approved two of the most aggressive pension reforms the country has seen in recent years by a more than two-to-one margin.

Both cities have laid off hundreds of workers in recent years to pay their soaring pension bills, and bankruptcy is possible without reining in benefits. Voters in San Diego sought to avert insolvency by shifting new hires to defined-contribution plans, which will take taxpayers permanently off the hook for future workers' pensions. San Jose's ballot measure created a bigger splash because it reduces benefits for current workers; most state and local pension reforms have only affected new hires. Employees will have to choose between accepting a lower level of benefits going forward or paying up to 16% more of their salary to keep their current plans.

Because the unions couldn't stop these reforms at the ballot box, they'll try to block them in court. The unions argue that reducing the pensions of current employees violates California's constitution, which forbids governments from impairing contracts. What is unclear under state law is whether workers' contracts include their unaccrued benefits in addition to those they've already earned. No other California city has recently tried to scale back unearned benefits, so the lawsuit will help clarify state law.

Voters had to take matters into their own hands because Democrats in Sacramento won't even bring Democratic Governor Jerry Brown's pension proposals to a vote. Once again the Golden State's referendum process has proved its democratic worth by letting voters leap over union special interests.

I remember that. He got some very good ideas onto the ballot (anti-gerrymandering measure being another IIRC) but apparently did not realize the firestorm of opposition from the unions that would result or the disproportionate effect of union mobilization in elections where major offices are not in play and voter turn out is less.

I agree, he lost all fighting spirit after the defeat of these measures.

***Sports bettingGambling manCan New Jersey do what it wants?Jun 2nd 2012 | NEW YORK | from the print edition

..CHRIS CHRISTIE, New Jersey’s Republican governor, is a recent recruit to the cause of gambling. In early 2011 he kept quiet when Ray Lesniak, a state senator, tried to challenge the federal Professional and Amateur Sports Protection Act (PASPA), which limits sports betting to the four states that had already legalised it by 1992. A court threw out the case. Mr Christie also vetoed a bill that would have legalised online gambling, saying it would violate the state constitution’s requirement that wagers should originate in Atlantic City.

But much has changed in the past year. In particular, Mr Christie faces a fiscal crunch: on May 23rd the legislature’s budget officer predicted that taxes in 2012-13 would bring in $1.3 billion less than forecast. Levies on sports bets could be a rich new source of revenue.

The next day Mr Christie completed his conversion to pro-gambling politician. After voters approved a non-binding referendum backing sports betting, and the legislature legalised it, he announced he would authorise it in time for it to take effect this autumn, directly violating PASPA. “If someone wants to stop us, let them try to stop us,” he said.

Many powerful actors will take up his challenge. The National Football League (NFL) has long opposed gambling for fear of match-fixing. In 2009 it joined other sports leagues to sue Delaware, after the state tried to allow betting on individual NFL games. Delaware is one of the four states that are allowed to host sports gambling. But PASPA limited the four only to the specific forms of sports betting they allowed before 1992; Delaware was naughtily trying something new.

Mr Christie is likely to make this a states’-rights issue. Since the bets would have to be placed in person—federal law bans gambling using telecommunications—the business would take place entirely in New Jersey, and commerce has to cross state lines in order to be regulated by Congress. Moreover, even if a court does affirm federal control over sports gambling, it still might require all states to be treated equally, ending Nevada’s privileged status.

Despite such arguments, Mr Christie faces an uphill legal battle. His best chance probably lies with lobbying Congress to overturn PASPA, rather than hoping a judge will throw it out.***

JDN,"Something needs to be done besides just raising taxes."Wow JDN.You just hit a triple.If you said something needs to be done instead of raising taxes that would have been a homerun.

Well, at least I'm in scoring position. .

But like baseball, going for the fence is not always the best idea. Compromise (a dirty word I know most here think) is in order. I'm glad that term limits were extended, giving CA legislators time to develop relationships and work on solutions, rather than only focusing on partisan politics. I acknowledge that their is waste. Further, benefits for all public employees including police and fire need to be reigned in. I think it's wrong for take away benefits already earned, but for the future..... I'm old enough to remember when working for IBM or BofA meant you had a job for life. Well, that's not true anymore. Times change. Business have been leaner and more productive. Government needs to do the same. Just throwing money at the problem is NOT a solution. That said, sometimes additional money is necessary.

California Democrat Gov. Jerry Brown has discovered one way to cut into the projected $100 billion price tag of his cherished high-speed railroad through the Central Valley: forgoing the very same environmental regulations he enforced as the state's attorney general. In order to get the project underway early next year, Brown is calling on California's legislature to limit the legal challenges environmentalists can throw at the project, which would simply replace carbon-belching automobiles and aircraft traveling up and down the state with trains powered by electricity created in fossil fuel-burning power plants. Key among these revisions to normal environmental review is allowing the state to make changes without going through the entire review process again.

Predictably, environmental groups gave Brown's proposal a chilly reception. "Environmental review is not going to slow this project," claimed Sierra Club California director Kathryn Phillips. She also chided the "ineptitude" of the California High-Speed Rail Authority over the last four years.

One is led to wonder, though, why more projects and development can't qualify for expedited treatment and waivers in a state crying for jobs. Brown used a similar environmental approach on a proposed football stadium in Los Angeles, saying the shortcuts were necessary to "get people working." Taxpayer-funded boondoggles aren't the only needed infrastructure in the Golden State, and those Central Valley farmers who can't get water because of the sanctity of a nondescript two-inch fish probably wonder how they ended up on the wrong side of the tracks.

SACRAMENTO -- Gov. Jerry Brown demanded Tuesday that lawmakers cut deeper into state spending, and welfare in particular, before they move a budget to his desk.

As majority Democrats presented their spending plans in both the Assembly and Senate, the governor released a statement declaring, "We're not there yet, " and said the proposal being pushed through the Legislature is fiscally irresponsible.

"The Legislature has agreed to some tough cuts, but the budget before the committees today is not structurally balanced and puts us into a hole in succeeding years," Brown's statement said. "We need additional structural reforms to cut spending on an ongoing basis, including welfare reform that's built on President Clinton's framework and focused on getting people back to work."

Lawmakers have a June 15 constitutional deadline to pass a budget. Under a law approved by voters in 2010, legislators' pay will be docked for every day after that until a budget is passed.

Legislative leaders and the governor are also eager to show voters they can get their work done on time and responsibly in a year when they will be hitting up California voters for billions of dollars in tax increases on the November ballot.

The major difference between the two sides remains Brown's proposal to cut welfare benefits by $880 million. Democrats in the Legislature have balked at the governor's call to reinstitute and tighten work requirements for some welfare recipients with young children, which were suspended two years ago in a cost-saving move.

They also bristle at Brown's call to reduce some monthly welfare checks by as much as 27% for a single parent with two children.

Senate leader Darrell Steinberg (D-Sacramento) called Brown's focus on welfare "a surprising and odd choice of an issue to stake your ground on," and said the governor's proposed changes would devastate some of the state's neediest.

"Reform that encourages people to go back to work is great," he said. "But reform that hurts middle-class and poor people living on the edge is not what we should be doing."

Republicans, meanwhile, are siding with the governor.

"He's wanting to change the culture from just welfare to more of a culture of work," said Sen. Bill Emmerson (R-Hemet) of Brown. "I just don't understand Democrats for not supporting the governor on this one."

Steinberg reiterated Democratic lawmakers' pledge to pass a budget by week's end, whether or not they reach a deal with Brown. He said the state's books could be balanced without the welfare reductions.

"Over the last few years, cuts have been a necessity," he said. "They are not a virtue."

SACRAMENTO, Calif. (AP) -- California lawmakers approved billions of dollars Friday in construction financing for the initial segment of what would be the nation's first dedicated high-speed rail line connecting Los Angeles and San Francisco.The state Senate voted 21-16 on a party-line vote after intense lobbying by Gov. Jerry Brown, Democratic leaders and labor groups.

The bill authorizes the state to begin selling $4.5 billion in voter-approved bonds that includes $2.6 billion to build an initial 130-mile stretch of the high-speed rail line in the Central Valley. That will allow the state to collect another $3.2 billion in federal funding that could have been rescinded if lawmakers failed to act Friday.

"The Legislature took bold action today that gets Californians back to work and puts California out in front once again," Brown said in a statement. He later celebrated with Senate President Pro Tem Darrell Steinberg of Sacramento, a fellow Democrat.

Brown pushed for the massive infrastructure project to accommodate expected population growth in the nation's most populous state, which now has 37 million people. He said the project is sorely needed to create jobs in a region with higher-than-average unemployment. The bill, which passed the state Assembly on Thursday, now heads to Brown for his signature.

The first segment of the line will run from Madera to Bakersfield. The final cost of the completed project from Los Angeles to San Francisco would be $68 billion.

"It's unfortunate that the majority would rather spend billions of dollars that we don't have for a train to nowhere than keep schools open and harmless from budget cuts," Sen. Tom Harman, R-Huntington Beach, said in a statement.

Sen. Ted Gaines, R-Granite Bay, said the project would push California over a fiscal cliff."It will require endless subsidies and will blast a massive hole into our budget," Gaines said in a statement.

The Bay Area Council, a group of business leaders from the San Francisco Bay and Silicon Valley areas, cheered the vote. The council backed the 2008 statewide bond measure regarding the rail line and had been working to sway legislators in support of the project in recent weeks.

"This is a courageous step forward for California's future," said its president and CEO, Jim Wunderman. "California has grabbed a golden opportunity to build the nation's first high-speed rail system, create the backbone of a new, clean 21st century transportation system and support our future economic growth."

Dan Richard, chairman of the California High-Speed Rail Authority, which is managing the project, said California would have lost billions of dollars in federal aid if the Senate fails to pass the bill before adjourning Friday for a monthlong recess.Richard said California entered a contract that called for the federal government to provide money for building the Central Valley segment if the state also put up its share.

California was able to secure more federal aid than expected after Florida, Ohio and Wisconsin turned down money.Before the vote, at least half a dozen Democrats in the 40-member Senate remained opposed, skeptical or uncommitted. Some were concerned about how the vote would impact their political futures, while others were wary about financing and management of the massive project.

One dissenter, Sen. Joe Simitian, D-Palo Alto, said public support had waned for the project, and there were too many questions about financing to complete it.

"Is there additional commitment of federal funds? There is not. Is there additional commitment of private funding? There is not. Is there a dedicated funding source that we can look to in the coming years? There is not," Simitian said.

In recent days, Democratic leaders included more funding to improve existing rail systems in an effort to entice support for the bullet train. The bill now allocates a total of $1.9 billion in bonds for regional rail improvements in Northern and Southern California. The upgrades include electrifying Caltrain, a San Jose-San Francisco commuter line, and improving Metrolink commuter lines in Southern California.

How Insider Politics Saved California's Train to Nowhere The high-speed rail line may never be built, but it will save a few Democratic seats. By ALLYSIA FINLEY Environmentalism may be religion to some on the left, but its high priests aren't all pure and righteous. Consider the not-so-immaculate conception of California's bullet train.

Last week, the state's legislature authorized $4.7 billion in bonds to start construction on high-speed rail, which had been stalled in Sacramento for more than a decade due to logistical and political malfunctions. This train is now out of the station—though it's almost certain to break down soon.

The project's godfather is Democratic Congressman Jim Costa, who as a state senator in the 1990s wrote legislation creating California's High-Speed Rail Authority and helped plan the 500-mile route between San Francisco and Anaheim. Before being elected to Congress (in 2004), he also authored a $10 billion state bond initiative to finance the project. Lawmakers in Sacramento postponed that initiative until 2008, fearing that California's recurring budget crises would make it a hard sell.

But sell it they did. The rail authority promised voters that the train wouldn't require a subsidy and that the feds and private sector would pick up most of the $33 billion tab. Expecting a free ride, voters leapt on board and approved the initiative in November 2008. Not long afterward, the authority raised the price to $43 billion.

Investors refused to plunk down money without a revenue guarantee—that is, a subsidy—from the state, which wasn't forthcoming. California's attorney general, whom we now call Gov. Jerry Brown, declined to investigate the bait-and-switch.

As soon as he took office, President Obama tried to help the state with $2.4 billion in stimulus money. A year and a half later—and two weeks before the 2010 midterm elections—the White House offered an additional $900 million, provided that the $3.3 billion sum be spent in the sparsely populated Central Valley. That is, in the congressional districts of Mr. Costa and fellow Blue Dog Democrat Dennis Cardoza, both of whom had provided critical votes for ObamaCare in March 2010 and were then in political peril.

The congressmen rode the subsidy train to re-election, flogging the 135,000 jobs that the construction would supposedly create in the Central Valley. To be sure, Mr. Costa denies trading his ObamaCare vote for high-speed rail money: "That's not something I do," he tells me. Besides, he says, the train "had already become unpopular by [the 2010 election]," so it couldn't have accounted for his victory.

Actually, the train's popularity didn't plunge until 2011, when costs exploded to nearly $100 billion and the California Legislative Analyst's Office (among others) warned that the first 130-mile segment would become a train to nowhere. Since congressional Republicans promised to zero out federal funding for high-speed rail, analysts noted, the state wouldn't have enough money to electrify the tracks, let alone build out.

Meanwhile, many parties—farmers in the Central Valley and governments in the Valley's Kings County and the tony liberal cities of Palo Alto, Menlo Park and Atherton—were suing the rail authority for not adequately addressing the train's environmental impacts. Gov. Brown proposed shielding the train from such environmental lawsuits but abandoned the idea after the Sierra Club threw a tantrum.

The more people read and heard about the train, the more they disliked it. A string of Field and Los Angeles Times polls this year have shown that voters would block the train by a two-to-one margin if it were put up for a referendum. In 2008, 55% of voters approved the rail bond.

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CloseAssociated Press/Paul Sakuma

Transportation Secretary Ray LaHood (left) with California Gov. Jerry Brown last year..Souring public opinion started to give some Democratic legislators—particularly in the Bay Area and Los Angeles—cold feet. They threatened to waylay the train if their grievances weren't addressed, chief among them that the rail authority and White House weren't giving them their fair share. They wanted to milk the bullet train for whatever Democratic leaders thought their votes were worth.

But in Washington, Secretary of Transportation Ray LaHood had different plans. Two months ago, he threatened to claw back federal funding if Sacramento didn't green-light construction before summer's end. "We can't wait," he said. And why not? Because Republicans were threatening to claw back the money if they took the White House and Senate in November.

Mr. Brown used that threat to demand that legislators authorize $2.7 billion in state bonds before they adjourned this week. He sweetened the deal for Bay Area and L.A. legislators by adding $2 billion for regional rail projects. Included was $700 million to bail out—"modernize"—Silicon Valley's insolvent Caltrain.

The governor rounded up just enough Democratic votes for passage. Four Democratic senators demurred, including Ventura County's Fran Pavley, author of the state's 2006 cap-and-trade law. She and two others faced tough re-election challenges.

The fourth nay vote came from Palo Alto's Joe Simitian, who has sat on a high-speed rail subcommittee. He tells me he knew better since he "had ample opportunity to probe deeply" into the project. And other Democrats? "I'm sure they all felt fully informed," he says unpersuasively.

"The whole thing was carefully staged to allow [dissenting Democrats like Mr. Simitian] to speak about their no votes just before their vote was taken. But Brown knew he had his 21 votes in his pocket," says Bay Area economic analyst Bill Warren. Democrats gave their OK, he says, because they wanted money for local rail projects and construction jobs. "I doubt if any of them actually believe in their hearts that the rail system will ever be completed."

Indeed, environmental lawsuits could block construction in the Central Valley or at least delay it for several years. The White House will no doubt send its regrets to Rep. Costa.

Regardless, the Bay Area and L.A. will likely get their pound of taxpayer flesh. Next year taxpayers will have to start paying interest on the rail bonds—about $380 million annually for the next 30 years—assuming investors bite. That's nearly as much as the governor is proposing to cut from higher education if voters don't approve his millionaires' tax initiative in the fall.

This plundering of higher education should serve as a warning to voters who think that approving the millionaires' tax will somehow save them from one day becoming sacrificial lambs on the government's altar. Nothing is sacred.

Ms. Finley, a Californian who loves her state unconditionally, is assistant editor of OpinionJournal.com.

"San Bernardino [California] has an annual budget of $258 million; it is running a budget deficit of $45 million. Where does that money go? To the unions, largely. About three-quarters of the general fund goes to personnel; 78 percent of that 75 percent goes to public safety employees, the most lucratively compensated of all government workers. The city retirement fund amounts to 13 percent of the general fund. ... The statistics are strikingly similar in Stockton. Sixty-eight percent of the general budget each year goes to city retirees and compensation for workers. Their budget deficit was $26 million; the year before, it was $37 million; the year before that, $23 million. Retirement costs constituted some 17.5 percent of the budget. ... Then there's Los Angeles. Los Angeles faces a $238 million shortfall; it faces a grand total of $27 billion in unfunded pension liabilities. How much of the budget do union pensions consume? A full 15.4 percent of city expenditures. ... Noticing a pattern? Deficits as far as the eye can see. Rotten economic situations. And union pensions that take up a substantial chunk of the budget. ... This is what liberalism wreaks on cities. No city has ever gone bankrupt from spending too little cash. ... California is going the way of Stockton and San Bernardino. The only difference is that when the state does go bankrupt, the federal government will undoubtedly try to step in. But what happens when the federal government goes bankrupt for pursuing Californian policies?" --columnist Ben Shapiro

In California, it is also the best of times and the worst of times. Jerry Brown just announced we are short $16 billion, not $9 billion, as he does his best to promote his massive tax increases on “them” on the June ballot. Yet it is still hard to kill off California.

Due to the globalized rise of Asia, there are now a billion new consumers in China, India, Japan, Taiwan, and South Korea, with money to buy California fruits, nuts, beef, and fiber. And while the state’s students have never been more unprepared in science and math, California high tech farming—run by just a few thousand entrepreneurs—has never been more sophisticated and ingenious. Never have there been so many new hybrid species of trees, vines, and row crops, never so much mechanization and replacement of manual labor, never so much sophisticated computerized irrigation and fertilization. Just when I think no more production can be squeezed out of an acre, no more markets can be found for yet another 1,000-acre block of almonds or pistachios, no more new machines can figure out how to eliminate labor, prices keeps soaring and the profit margins keep growing—and in a government induced depression no less.

New Carthage, Circa AD 400

Yet amid the good news, the wealthy agribusiness baron does not put his kid in the school next to his sprawling acreage. He factors into his expenses the serial theft of copper conduit from his pumps and the daily vandalism as the cost of doing business. He knows better than to drive a rural road after 10 PM when shootings, drunk driving, and violent crime will leave their detritus for the morning clean-up.

Most big FARMERS live in northeastern Fresno or Clovis for the ambiance and the schools, and then drive out to their goldmines in the outback in my environs. In some sense, rural central California has never been more lucrative for a few, and never more foreboding for the rest of us. I was reminded of this the other day, when an agribusiness man at a lecture I gave, offered me some wise, if cynical advice: “you have it backwards, Mr. HANSON. You’re supposed to live in a good place and drive out to lots of your farmland, not live right on top of very little of it.”